This new "funding for lending" scheme could provide an £80bn boost to loans to the private sector within weeks and alleviate growing fears of a second slump since the start of the financial crisis in 2007.

In a second scheme the Bank will begin pumping a minimum of £5bn a month within the next few days into City institutions to improve their liquidity.

The idea is that the money will be put immediately back into the British economy and raise confidence in their financial system. "We are not powerless in the face of the eurozone debt storm," said Chancellor of the Exchequer George Osborne. "Together we can deploy new firepower to defend our economy from the crisis on our doorstep. The government, with the help of the Bank of England, will not stand on the sidelines and do nothing as the storm gathers."